All eyes are on Apple this afternoon as the company is set to report its Q3 2016 earnings and Wall Street isn’t expecting anything great.
Apple CEO Tim Cook warned in March that the company will post declining revenues compared to a year ago, but with iPhone sales on the decline as customers wait to upgrade to the iPhone 7, the numbers could be a bit lower than investors are hoping for.
Today’s earnings call for Q3 2016 is set to kick off at 2 p.m. Pacific, when analysts from the top firms around the world will have a chance to ask Tim Cook and CFO Luca Maestri whether iPhone sales have finally bottomed out, or if things are still going to get worse before they get better.
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You can listen to a replay of Apple’s call later online, or checkout out our full rundown on Cult of Mac.
And we’re finished!
“We believe the iPhone SE is doing exactly what was intended,” says Maestri. Adds Apple is seeing more “new to iPhone” owners and lots of iPhone fans who prefer the 4-inch model. The device is not cannibalising sales of iPhone 6s.
For the record, Tim calls it “Pokeman” three times. Hey, Pokemon GO only made a few billion dollars…
Gene Munster asked how Pokemon Go has affected Tim’s view of the future. “I think it’s a testament to what happens with innovative apps and the whole ecosystem,” Tim replied, pronouncing it ‘poke — ee — man.’
“We think AR will be huge,” Cook said, “It also proves that AR can be really great. We have been and continue to invest in AR and think it could have some interesting commercial uses.”
Tim also commented on Apple Pay, revealing that brings in a significant amount of revenue to Apple’s Service. “The revenue growth from Apple Pay is astronomical but the base is very small,” said Tim. “For today, Apple Pay is very much about a great feature for our customers so they can pay in a private and secure way.”
On key Apple services that are banned in China, Cook said, “For books and movies, we currently have those stores off… To put this in some context, those two stores, for the month that we had them operational, the revenue was less than $1 million. So it’s not a revenue-related issue… From our point of view this is a service we want to provide our customers so we’re working very closely with government agencies… we’ll see how that goes but we’re optimistic there.”
Tim is asked about adding more Apple services to monthly payment schemes like the iPhone Upgrade Program. No specifics, although Tim thinks it’s a good move for Apple.
Asked why guidance for next quarter isn’t even stronger, Luca Maestri said that looking around the world “we do see a lot of positive signs but the overall macro economic market has some troubling signs,” that play into Apple’s guidance.
On Apple’s plans for iPhone inventory in Q4, Maestri said, “When we talk about a $3.6 billion dollar inventory reduction, that is not entirely iPhone… For the September quarter, it is pretty much in line with what we have seen in the past… As you know we do not provide guidance for channel inventory… When we look around the world we see a lot of positive signs.”
Tim is asked how iPhone upgrades are going to play out, with sources suggesting slow upgrade rate. “I don’t want to talk about new phones that aren’t out,” Cook says.
“All these things are about user experience and making people’s daily lives better,” Cook adds.
On Apple’s platform strategy, Cook said, “We think to have a great platform you have to have a really healthy ecosystem… we’re proud of the developer community and that developers are making more money writing for iOS than other platforms… Over 2 million apps in the App Store… The TV and CarPlay are trying to provide users a seamless experience across all the different things they do in their lives.”
“We’re not going to get into products, or product transitions,” says Tim Cook when asked where Apple’s growth will come from next quarter. “We are very happy with the switcher rate we saw, our highest rated ever recorded…So when we look at all that we’ve made our best estimates to where we’ll come in.”
On Didi Apple’s big investment in China’s Uber rival, Didi, Cook said Apple sees it as a great financial investment. There are also some strategic things they can do together and it will help them learn deeper about the Chinese market.
Q) How is Tim working out what to spend Apple’s money on? A) Apple spends money on R&D. However, always on the lookout for new IP and opportunities. Apple buys a new company every 3-4 weeks. That’s an interesting stat.
Question time for analysts…
Realizing that the liveblog’s title is not quite as appropriate as we thought it would be… Great news for Apple.
Mac install base has grown to a new all-time high at the end of Q3, despite a tough quarter.
Average amount spent in the App Store per customer is the highest Apple has ever recorded.
Luca is now running through all the boring financial numbers. Now is a great time to get in a 10 minute power nap.
3 out of 4 contactless payments in the US are now made with Apple Pay. It’s now live in 9 markets, including 6 of Apple’s top 10 markets.
Tim Cook talking about machine learning and Apple’s focus on AI. This is something new (at least in terms of Apple’s obvious focus on it.)
“India is now one of our fastest growing markets,” says Tim. iPhone sales up 51 percent year-on-year in India. Retail stores are definitely on the way.
Tim says he’s still optimistic in potential growth in China and India after visiting both countries this year. First time smartphone buyers in China represented the majority of Apple’s sales and the company is opening its 21st store in the country.
“Our underlying business there is stronger than the results imply,” Tim Cook said, speaking of China’s economy.
Half of iPad Pro users are buying them for work.
Best iPad in 10 quarters. Exceptionally high satisfaction and engagement.
Service revenue is growing so fast, Apple says it will be the size of a Fortune 500 company next year.
Tim says Apple’s iPhone switch rate is stronger than its ever been.
iPhone SE demand outstripped supply throughout the quarter, but Apple didn’t hit a supply demand balance until recently.
iPhone unit sale through was down just 8% YOY and did better than Apple predicted three months ago.
The call is finally getting started. Tim Cook will start off by reading his opening statement before turning time over to Luca.
Good news and bad news for iPad: revenue is up 7% year-over-year. But unit sales are still down. iPad Pro’s price tag has provided a nice boost, but will it be enough to revive Apple’s tablet lineup?
“There are a number of encouraging signs in the results,” Tim Cook told The Wall Street Journal. “This last quarter was surprising because it was better than we expected from so many different points of view, not just one thing.”
Tim getting ready to roll into the investor call like
“We returned over $13 billion to investors through share repurchases and dividends, and we have now completed almost $177 billion of our $250 billion capital return program,” said Apple’s CFO, Luca Maestri, in a statement.
Analysts were worried that the iPhone SE would wreck Apple’s margins this quarter because its cheaper, but Apple still enjoyed a gross margin of 38 percent, compared to 39.7 percent in the year-ago quarter.
The earnings report is in and Apple did slightly better than expected with $42.4 billion in revenue and quarterly net income of $7.8 billion.
iPhone demand was decent, with 40.4 million units sold. iPad revenue is up too and Services revenue grew 19% as the App Store hit an all-time record.
Apple will publish its financial report in about 45 minutes. For a quick run through of what to expect, read our Q3 2016 expectations.